Wyoming:

As a key state in the energy puzzle, Wyoming is home to a robust wind energy industry and large natural gas resources. What are the chief hurdles facing the state as it tries to expand its energy production? During today's OnPoint, Wyoming's Democratic governor, Dave Freudenthal, discusses his state's regulation of hydraulic fracturing and the impacts the practice is having on communities. He also explains why his state is not prepared for U.S. EPA's pending regulation of greenhouse gas emissions.

Monica Trauzzi: Governor, Wyoming is center to several key energy issues that are being discussed here in Washington now, and one of those is hydraulic fracturing --

Gov. Dave Freudenthal: Right.

Monica Trauzzi: For the recovery of natural gas. And your state has large natural gas reserves that it's trying to tap into. But there are also some serious concerns about the impacts of fracturing on water supplies. Do you think industry is being transparent enough when it comes to the chemicals that it's using for hydraulic fracturing?

Gov. Dave Freudenthal: You know, I can't necessarily speak nationwide, but I can tell you that in Wyoming, as you know, we've recently adopted a set of rules through the oil and gas commission which requires a filing of the contents of all the fracking materials along with the other information you need, frankly, is the wellbore integrity information, as well as the information related to the pressures that are applied and the rates at which items are forced into the formation. That information, unless they can make a showing that it is proprietary, will be available to the public. If they can make a showing that it's proprietary, then it is reviewed by the state agency and will be subject to disclosure only in the event that, you know, like you have an accident or you have some need to determine whether or not a particular chemical was present. I think the issue of transparency is one that has risen within the last, I don't know, a couple or three years, and so I think that everybody is starting to get used to it. In our case, the simplest thing for us to do is just adopt some rules. Require the transparency, put it in place. Now, it wasn't greeted with the greatest of enthusiasm by all the parties, but I think most of the majors were fairly, if not supportive or at least accepting of the idea that we're going to do it. I mean, we're obviously a large oil and gas producer, a lot of fracking in the gas formations, and there will be a significant amount of fracking in what's called the Niobrara play, which is an emerging oil play.

Monica Trauzzi: So do you think the states would do a better job when it comes to fracking in terms of regulating, or should the federal government --

Gov. Dave Freudenthal: I mean, I'm a governor, so generally, I believe we can do a better job of anything than the federal government. And I think the proof of that is that the federal government is back here kind of with one foot nailed to the floor wandering around in circles, and we've adopted rules and we're proceeding forward. And I think that the states had the capacity to react quickly and react fairly succinctly, in part, particularly in this fracking area, and like a lot of areas, the formations are going to vary from state to state, and so you're going to have probably -- I think you're going to have different tests that people are going to want to have with regard to both the integrity of the wellbore and some of the issues. For instance, in a lot of the fracking in Wyoming, we probably get 80 percent of the material back. But in the other places, particularly in the shale place, they probably lose 80 percent of the material. So it has a variability within regions that I think needs to be effectively accounted for, and probably the states are better at that.

Monica Trauzzi: What's the potential for natural gas in your state?

Gov. Dave Freudenthal: It's huge. I mean, obviously, you know, we're kind of the second leading natural gas producer now, and we believe that it goes forward. But I think the other thing that you need to understand is that fracking now is a pretty big part of the oil plays, both in the Dakotas, into Montana and in the emerging oil plays in Wyoming. So it is going to be both an oil issue as well as a natural gas issue.

Monica Trauzzi: All right, so let's talk about the water issue that's involved in all of this. Obviously, it's a big concern --

Gov. Dave Freudenthal: Sure.

Monica Trauzzi: Because a lot of water is required in order to make this recovery work.

Gov. Dave Freudenthal: Right.

Monica Trauzzi: Is there too much of a rush to drill and get all of this natural gas recovered, and are you turning a blind eye to some of the impacts that could happen to water?

Gov. Dave Freudenthal: You know, I hear that, but I don't see that in our state. Again, I'm not -- I don't pretend to be an expert at sort of nationwide. In our case, we've been fairly careful in terms of dealing with the water question. Now, there's a couple of locations where people are trying to figure out what has happened in the water, particularly in Pavilion. But if you notice, nobody's quite sure. And part of the problem there is that there's some of the older pits that were up there, the disposal pits that were there long before anybody thought about lining them. And so it is unclear what the origin of the issue is. But, at its core, you need to remember that in that case, none of those wells have been shown to violate any of the Safe Drinking Water Act standards. But that is not to say that it's not an issue, and so we're spending money, EPA is spending money, trying to figure out what the cause and effect is. But even if we're not sure, it still seems to me appropriate for the state to have adopted these rules with regard to hydraulic fracking so that we can be sure of going forward.

Monica Trauzzi: Let's switch gears and talk about EPA's regulation of greenhouse gas emissions. The states are going to be directly involved with the permitting process. Is your state ready to comply with these rules?

Gov. Dave Freudenthal: No, we've already notified them that we do not have state legislative authority to proceed with regard to greenhouse gas permitting. And I have no intention of asking the Legislature for that authority. I think what's gone on here is that in the kind of context of this issue, you've had an inability for Congress to act. You've got a lot of frustrated people, so now we're trying to accomplish things administratively that probably deserve a better look, frankly, from either the Congress or -- preferably from the Congress. Because at the end of the day, the issue gets complicated. I mean, they can't figure out what to do with the "tailoring" rule. They're not quite sure what that's going to look like. And then they're saying, "Well, we haven't figured out what the BACT rule is," and it seems to me that what you've got is you've got a policy that's probably ahead of the technology development and you've got to figure out how to move those two together. And I'm not sure you can do that in the kind of current environment where everybody's just so angry.

Monica Trauzzi: So, other states have said that they are ready.

Gov. Dave Freudenthal: No, it's just --

Monica Trauzzi: What's the difference? Why aren't you guys?

Gov. Dave Freudenthal: Well, one is what organic statutory authority you have, and we do not have organic statutory authority. You have to remember that the states are a creature of the statutes. Whatever power the agency has exists only by virtue of what the Legislature has given them, and in our case, the Legislature has specifically prohibited regulation of any of the gases in the Kyoto Protocol.

Monica Trauzzi: So you would like to see Congress, for example, move forward with something like Rockefeller's amendment that would --

Gov. Dave Freudenthal: Absolutely.

Monica Trauzzi: Pause the regulation?

Gov. Dave Freudenthal: Yeah, I think that the right answer right now is, look, we don't know the right answer. Let's admit it and step back and say, all right, whether it's a two-year moratorium or whatever it is, but it seems to me that that old carpenter's rule about measure twice and cut once might apply here. As opposed to people sort of heading off and -- and if you watch the way the rules are coming together, it seems to me that what you don't have is a clear picture of either where they want to end up or how they're going to get there. Both of those suggests that perhaps a little time to figure it out would be a good step.

Monica Trauzzi: EPA is expected to move forward, however.

Gov. Dave Freudenthal: Oh, sure.

Monica Trauzzi: So how is your state going to deal?

Gov. Dave Freudenthal: Well, what will happen is that Region 8 down in Denver, of EPA, will handle the greenhouse gas permitting, and we're working with them to try to coordinate that. We'll do the traditional state implementation, approved state implementation plan permitting. And we're trying to make sure that we coordinate that so that the process moves forward in a coordinated fashion so that both the state agency and the federal agency would act on and permit it about the same time.

Monica Trauzzi: Let's talk transmission. Wyoming is a major player when it comes to wind energy.

Gov. Dave Freudenthal: Sure.

Monica Trauzzi: But there's been a slowdown in wind energy development --

Gov. Dave Freudenthal: Absolutely, yeah.

Monica Trauzzi: In your state this year. Why?

Gov. Dave Freudenthal: Well, if you think about Wyoming, we've got 40 percent of the class 5 to 7 winds in North America on the continent are located in Wyoming. And if you've been there on a windy day, you'd know that it's true. I think what's really going on is two things. One is, you have a lack of confirmatory buyers on the purchase end. And people don't build power lines or build the facilities unless they're going to be able to sell that power to somebody. The second thing is, you've had a great deal of market uncertainty by virtue of states' adopting essentially fencing policies that say if you're going to have a renewable portfolio standard, it's got to be produced in our state, most notably California. And if you end up with that, then Wyoming's advantage of being the low-cost producer evaporates, not because it's no longer the low-cost producer, but because of the political statements of other states saying, use it in California, produce it in California or Colorado has kind of the same policy. So you end up in a position where we had distorted the marketplace not by virtue of the functioning of the marketplace, but by the functioning of politics.

Monica Trauzzi: So, in terms of transmission, what do you need to see from the federal government to get things moving on that front? It seems like there's always discussion about producing more renewable energy, but not as much discussion about improving transmission.

Gov. Dave Freudenthal: Well, the truth is, in this city, all there is is a lot of talk. I mean, if conversation and rhetoric amounted to anything, you know, this would be a wonderful place, but it doesn't. They never act. For instance, you're going to have to come to grips with the fact of, are you going to give FERC the capacity to locate power lines the same way you do natural gas pipelines? You know, if you look at it, there is a point at which the federal government has an interest in a fully integrated energy marketplace. And to the extent it can facilitate that, it should. But right now, although these people are worried about back here, and it is a weird place, all they ever worry about back here is who's going to win the next election. And all that we hear in the states are people worried about jobs, they're worried about their kids having jobs. Can they finance a house? And you come back here and you think all these people are worried about is why they're mad at each other for what they did last time or how they're going to get even with them next time and who's going to win in 2012, when people in most of the states are worried about their jobs. They're worried about what's going on. And so, to me, there is such a disconnect. And so when you say, what can the federal government do, to some degree, maybe they should shut down and let the marketplace operate. I mean, because most of what they're doing is creating uncertainty and uncertainty, markets hate uncertainties. If you're a utility and you have no idea what carbon policy is going to be, you have no idea what transmission policy is going to be, all you know is that you can't put it into the rate base today, because it's not required. So people say, "Well, they ought to be investing in new production or in new power lines," and they look at you and say, "Well, I will, but who's going to pay for it?" So you have all of this uncertainty that is politically based, it is not necessarily market based.

Monica Trauzzi: So then what's the outlook in terms of energy policy with the Republicans taking over the House? I mean, how do you think things are going to go?

Gov. Dave Freudenthal: I don't think it changes anything. I mean, because, if you notice, the discussion hasn't been about what you do with this country. The discussion has been what they're going to do with each other. And so, really, if they were your children, you would send them to their room and say, "Look, you can't come out until you can learn to play and work together." And I don't see that happening because -- and you know what I mean? I make light of it, but when you're sitting there in the state and you're trying to figure out, let's say, you've got somebody coming in and you want to talk to them about maybe a natural gas-fired plant or a coal-fired plant or wind energy project. And at the end of the day, what they really say is, "Look, you have all the basic resources. You're the right place for us to do it. It makes sense as the low-cost producer, but we have no idea what the federal government's regulatory policy is going to be. We have no idea what the federal government is going to end up doing. Therefore, we're going to sit on our capital," so they're not making the investments.

Monica Trauzzi: Governor-elect Mead will succeed you in a few weeks.

Gov. Dave Freudenthal: Good guy.

Monica Trauzzi: What are the key energy and environment issues you'd like to see him take up during his term?

Gov. Dave Freudenthal: You know, I've been really reluctant to tell him what he's supposed to do. But I will say this, that there are certain basic components of the Wyoming economy which will shape the administration of any governor, whether it's me or my predecessors or my successors. And that is that we are a resource state, we're an energy exporting state, and we are dependent on our capacity to do that, to fuel the economy for the people who live there. And what we have is the capacity, I think, to end up saying, "All right, we can do all of this. We can regulate it ourselves largely without too much federal interference and we can end up with good jobs, a good economy, and a great place to live."

Monica Trauzzi: OK, we'll end it there on that note.

Gov. Dave Freudenthal: You bet.

Monica Trauzzi: Thank you for coming on the show.

Gov. Dave Freudenthal: You bet, thank you.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.